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REQUEST FOR COUNCIL ACTION Date:December 5, 2022 Item No.: 7.b Department Approval City Manager Approval Item Description: Adopt the 2023 Utility Rates 1 B ACKGROUND 2 Unlike many city services that are supported by property taxes, the City’s utility or enterprise operations 3 are funded primarily by user fees and are operated as separate, stand-alone functions. Over the past 4 several months, city staff has been reviewing the City’s utility operations to determine what customer 5 rate adjustments are necessary for 2022. The City engaged Ehlers to perform an updated utility rate study 6 of the Water and Storm Drainage Funds from 2021 and to perform an analysis of the Sanitary Sewer Fund 7 rates for 2022. 8 9 Operational Review 10 11 Water Fund Operations 12 As a way of background, it is important to review the past few years related to the water fund and rates. 13 14 In 2020, the City contracted with Ehlers to do a rate study, something that had not been done 15 previously. The water fund was in a cash deficit at the end of 2020. The 2020 rate study recommended 16 the adoption of tiered water rates based on consumption, and bonding for immediate projects. The 17 study also indicated that due to the deficit balance in the fund and future capital needs, rate increases 18 were necessary. Specifically, it was indicated that there would need to 5% water rate increases every 19 year through 2026. (3% for inflationary costs, 2% to building fund balance). 20 21 In 2022, the City again contracted with Ehlers to update the utility rate study. The update was done 22 primarily due to a drastic change in the Storm Drainage Capital Projects projected for 2023-2042. 23 During the update we also received notice of a much more significant rate increase (9.5%) from St. Paul 24 Water than anticipated. St. Paul Water indicated that there would be several more years of 9%+ rate 25 increases due to their operational and capital needs. As part of the update, it was discovered that the 26 City of Roseville was not collecting as much revenue as it should from single-family residential and 27 commercial properties. It was determined that the new tiered rates for single-family residential and 28 commercial properties were not properly entered into the financial software at the start of 2021. As a 29 result, it was identified that approximately $814,270 was under billed. 30 31 Knowing of the higher costs from St. Paul Water, coupled with the decline in revenue, city staff 32 reviewed the upcoming water projects and significantly shifted some projects to future years to lessen 33 the financial need over the next two years. While capital spending was reduced in the short term to Page 1 of 5